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The Emerging New World Order – Part 2. The End of Sovereignty » Golem XIV – Thoughts

The Emerging New World Order – Part 2. The End of Sovereignty » Golem XIV – Thoughts.

The Emerging New World Order – Part 2. The End of Sovereignty

by  on DECEMBER 12, 2013 in LATEST

In part one I wrote, ” …in every country the people who run the State have largely decided they no longer wish to serve the people but prefer instead to serve the interests of a Global Over-Class”. I believe we are in the midst of an historical shift in the alignment of loyalty and political power, away from democracy. I want to make it clear I do not believe the new arrangement of political and economic power was the clear goal of some hidden cabal. I think each change had an ideological drive behind it but, to begin with at least, each change was largely opportunistic and piecemeal. These pieces have, however, added up. And as time has gone by and the different pieces have accumulated, I think some wealthy and powerful people as well as some who were ideologically driven, have seen the chance to make something they desired out of the pieces. I think those who never liked democracy-for-the-masses, but preferred something that was more like the Roman senate – a place for the sons and daughters of the already wealthy and powerful families to ensure they remained wealthy and powerful – I think those people have seen an historical chance to further their vision of the future they desire and, particularly in the last twenty or so years, have actively schemed and pushed for it. Some of them have lobbied for it from Wall Street and the City, others of the same elite have written laws for it when they were in Congress and Parliament. And always they have found affordable lackeys among our political class.

Of course no one is going to admit to this. No one wants it to be clear that this is what is happening. So what our leaders have needed for some time, is a way of  serving their new masters, while claiming to be still serving us; a way of saying,”The best, if not the only, way for the State to help you, the nation/people, is for us to first help these other people.”

The  Trickle Down ‘theory’ was an early attempt . But Trickle Down was always too clearly a political sound-bite  rather than a grand theory.  What was really needed was a new vision of what the ‘Greater Good’ should look like and a theory of how to get there. And critically it had to be something that, it could be claimed, Nations could not deliver. Not only not deliver but were actively standing in the way of. There had to be a shining future which the old order of Nation States was preventing us from reaching. And this idea has, I think, surfaced again and again in different guises, certainly since WW1, but more and more prominently  in the last three decades. The idea that Nations and nationalism are standing in the way of the progress and prosperity that only a free and unfettered global market can offer, and that the State must remedy this, by limiting the power and sovereignty of their Nations is, I suggest, one of the most powerful ideas of our age and is now maturing into  the ideology and politics the Global Over-class has been seeking.

A brief history of how the State sold out the Nation

In the aftermath of WW1 the League of Nations was created because, it was said, nations left to their own nationalistic devices could not keep the peace. The League’s stated goals were nearly all political and very little mention was made of finance or trade. Perhaps if the League had prospered it might have been adopted by the then rising power of global finance and history might have been very different. Instead the Great Depression happened and the power of global finance was set back. The regulations brought in to prevent another systemic Banking Crisis held back the unfettered growth of finance for two generations. Only finally undone at the end of the century.

After WW2, however, the idea of supra-national governance, and the inadaquacy of nationalistic governments,  rose again this time with the creation of, among other things, the IMF, World Bank, and the United Nations. This time the agenda of the supra-national powers was much more focussed on finance and trade. As US Secretary of State from 1933-44, Cordel Hull put it,

[U]nhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war….

Trade barriers and ‘unfair economic competition’ were the creations of national governments, free trade was, therefore, the remedy and was to be championed by the supra-national, impartial IMF and World Bank. Of course in reality the IMF and WB were not impartial. Whatever their stated purpose, the IMF and WB were tools of one ideology only , the freemarket , and were the post-war means by which the powerful nations crow-barred open the economy of any poorer nation that fell into their grasp. The attack on sovereignty had begun.

But it was little noticed in the West. In part because people were too busy being comfortable and in part because the UN was the part of Bretton Woods we saw most of in the West. The UN didn’t have an ideology – so the publicity went – other than universal declarations of human rights. It was all about aid for the starving and the rule of law. Sheltered behind this public face, however, the IMF, in particular was in every way different. It was completey ideological. And its ideology was narrowly free-market. It had the mandate and the power to force governments to alter their policies in favour of open markets and international western companies.

While the UN rushed aid to the starving, the IMF forced poor nations to get rid of tariffs that tried to nurture local farmers paving the way for global agribusiness. Local economies were laid bare on every hillside where global capital picked their carcasses clean. But because it was happening over there, few of us over here gave a damn. And if anyone was tempted to see any of it as an attack on sovereignty, it was given other names, such as ‘liberalization’. We weren’t attacking the sovereignty of poor peoples, we were helping them.

Their governments, we told ourselves, were corrupt and had no vision beyond a tribal nationalism. We, on the other hand, being wealthy white people, could save them. Let our companies in and we’ll lend you the money to save yourselves from nationalism and poverty. Above the entrance to the freemarket future we may as well have put a sign which read, “Shuld Macht Frei”. But we still did not think this was ever going to be our future.

We might have been less sanguine had we been more aware of what the poor relation of the Bretton Woods era, the GATT, would one day bring us.The General Agreement on Trade and Tariffs (GATT) was created in 1947 with the purpose of regulating international trade mainly by reducing “tariffs and other trade barriers”. Those other trade barriers were anything from subsidies for local industries, to environmental requirements and labour laws. In 1995 the GATT hatched the World Trade Organization (WTO). What made the GATT and WTO quite different from the IMF and WB is that it was no longer just a matter of policy as it had been with the IMF, it was now about rolling back specific laws and tariffs. AND you didn’t have to fall into debt to find yourself subject to their rule. Your government simply had to sign away some sovereignties and “voila”, your government had made you subject to rules and a world governing body you had not elected and had no power over at all. The power in the WTO very obvioulsy and clearly lay with the corporations, their lobbyists and their experts.

Thus while the IMF and WB trampled mainly on poor nations the WTO had power over any nation including the wealthy. And it was no longer purely at the level of trade policy and politics, it now opened to corporations an avenue for them to object to and challenge specific sovereign laws and tariffs. The rules of the GATT and the WTO were specifically created in order to supercede any nation’s and region’s laws where they concerned trade.

While the Conservative (Tory) party here in Britain, would rail about Europe ‘stealing away our sovereignty’, the truth was that  those same Tory politicians had been delighted, in 1995,  to sign away far more sovereignty to GATT. The difference for them was that Europe was seen as still harbouring some vaguely Socialist ideas about environment and employment rights, while the WTO very specifically did not recognize such things and in fact regarded them as exactly the sort of barriers to trade it was there to get rid of.  Such was and is the hypocrisy of the Tories, and now UKIP (UK Independence Party), about sovereignty and Europe. Labour was at least consistent in happily handing over soverignty to anyone and everyone. And the faithful western main-stream media never bothered to say a word nor to offer even an analysis let alone a critique.

Throughout the 90′s and noughties the GATT and the WTO were the primary means whereby corporate interests in one country were able to stop or roll back any rules and regulations they didn’t like, in any other country. Suddenly westerners who had never before felt threatened by international capitslism, woke up. There were suddenly ‘anti capitalist’ protests in rich nations. People who had never bothered about what capitalism did in poor nations were suddenly outraged. Now things were being done to them in their country and that was wrong! Of course there had always been those who had fought against what was done in the developing world. I don’t meant to suggest there weren’t. I am just noting how suddenly their numbers were swelled when they realized it could happen here, to them.

BUT it was still the case under the WTO rules that corporate interests could only roll back sovereign national rules and laws via their own national governments. The companies of a country could complain to their government about a foreign law or tariff but it had to be their own government, their State, which went to the WTO and filed a complaint. Thus although more corporate than the earlier IMF and WB, the WTO is still tied to the power of the State.

Which bring us nearly  up to date. The last and by far the most dangerous part of the State’s dismantling of national sovereignty, although it has its roots back in the 1970′s, has really only taken off in the last 5 years and has only in the last few months received much attention in the main stream media.

Bilateral Investment Treaties (BITs)

If the WTO is the State acting on behalf of corporations, then Bilateral Investment Treaties and their rules for “Investor-State Dispute Settlement” give corporations the power to challenge and over-rule nations directly. They are entirely non-democratic and stand completely outside of national based law and even outside of most of international law. They are therefore a major crystalization of the shift in power from the Nation to the Corporation and of course it has been the State which has facilitated this transfer of power.

I apologize that the preceeding history took so long and that I have therefore still not written about BITs. I just felt the context of what came before and what still today makes up a large part of the over-ruling of the Nation was important enough to do properly. I promise I will write about BITs in part 3.  I hope you’ll bear with me .


Global Debt, Global Currency » Golem XIV – Thoughts

Global Debt, Global Currency » Golem XIV – Thoughts. (source)

With the latest installment of the ‘US debt ceiling’ melodrama over, for now, perhaps it’s a good time to ask, what was it all about really?

I know that officially it was supposed to be an edge of your seat, high stakes thriller about how much debt the US government can carry before some disaster strikes, and who has the authority to decide. But I think that behind the lumbering domestic stage show there was actually a different, larger battle, with different stakes, being played out. The debt ceiling debate was, to my mind, something of a proxy war. Real for those caught up in its angry rhetoric, but seen from further away, clearly just a local manifestation of something deeper, and something being directed by different people than those making speaches in the spot-light.

Actually I think the fight over the US debt ceiling is a proxy for who controls the world’s real reserve currency. And that currency is not the dollar. I suggest we would understand events more simply if we recognized that the world’s real reserve currency is debt -pure debt.  We should not be confused by the fact that debt, globally, is denominated in several forms. Much like the dollar comes in bills of ten and twenty,  so the debt currency comes in dollars, euros, Yen and Yuan. But they are not the currency itself they are just the different bills it comes in.

In Britain we have pound notes issued by the Bank of England but also by the Royal Bank of Scotland, Clydesdale and Ulster Bank, but they are not different currencies, they are all pounds no matter whose logo in on the notes. I think globally we are now in the early and perhaps not quite recognized days of a similar situation. It is debt which is globally traded and used to settle and value all deals everywhere. The problem is this global debt system is not yet fully formed. It is still umbillically tied to the old system of national currencies and their issuers. And like mummies everywhere the old issuers like to think they are in charge long after they no longer are.

If you are willing to accept this idea, at least for argument’s sake, then the domestic dramas in different countries over how much of this or that kind of debt backed note, with this or that logo on it, should be permitted, take on a different character. I am not saying that the domestic arguments over how many dollars or euros can be printed up, how much debt should be carried are unimportant. They are important and do have profound real life consequences for people and businesses. But I am saying that the driving logic is not domestic and nor is it controlled or even understood by most of the domestic players.

Think of the Vietnam war. In Vietnam it was North vesus South. But for the wider world North and South were just proxies for a much deeper conflict of Communism versus America. And the politicians of South Vietnam were not really in charge of very much. I think this is increasingly the situation of domestic politicans when it comes to finance, debts and currency. Only they don’t yet know this one vital fact. Thus we have the dis-spiriting spectacle of watching the fag ends of our representative democracy argue about things most of them do not understand. An endless stage show where the actors strut and fret, and deliver their lines with gusto, pulling with all their puffed-up might on the familiar levers of power available to them, expecting applause. Yet all the while their drama and the levers of power they squable over are less and less connected to the actual engines of change.

The Democrats and Republicans think they are arguing over who should control the amount of debt the Fed will take on. Not realizing that neither of them, neither Republican nor Democrat controls the matter over which they are arguing. Neither do they realize – not fully at least – that theirs is no longer a theatre of power, it is mostly just a theatre. Power, fundamental power,  has moved elsewhere.

What the debt-celing debate was about, I suggest, was a fight between those who think they control the Fed and the currency (because once they did) and those who do control it but would prefer we not quite realize this.

I think the real battle going on is between the financial players led by the global banks, assorted funds and Insurers, all of whom are very much addicted to fiat debt-money, and a dwindling cadre of politicians who still think central banks control the currencies and elected officials decide how much debt is enough.

This latter group seemingly cannot understand why they can’t get the Fed or the ECB to do what they both said, ever since 2008, they would do, which is to ‘exit’ or to use the prefered term ‘taper’ the ‘extraordinary’ and ‘temporary’ measures they took in 2007, then took again in 2008 and again in 2009 and again in 2010 and 2011 and 2012 and 2013. Which is, let’s be fair to our puzzled politicans and pundits, a confusingly frequent use of ‘extraordinary’ and a long time for ‘temporary’. Hence their confusion.

What our politicians – most of them but crucially not all of them – seem reluctant to underdstand is that neither the FED nor the ECB nor any other central authority, can limit the amount of debt that is issued into the global markets. The banks issue the debt not governments. But that debt, conjured into existence by extending loans does then, particularly in periods of market uncertainty, ‘need’ – or rather or ‘demand’  – backing from a national currency. This creates a pressure on central banks to ‘issue’ more sovereign debt paper to provide the backing for the ALREADY created debt.

The big banks issue the reserve currency. It is a global reserve currency and replaced the dollar some time ago, only no one noticed becaue they kept the old brand name going. It’s not even as if it is just American financial intitutions which issue dollar debt which the Fed finds itself being forced to cover – foreign banks do it to. And anyone who issues dollar denominated debt has a hand on the strings which move the Fed around. Obviously the same is true for other major currencies and their central banks.

The governments and central banks can try to influence the creation of debt though interest rates or ‘stress tests’ and setting levels of ‘regulatory capital’ that must be held. But all of these can be and are gamed by the banks. And when gaming is not sufficient then a debt crisis can be brought in to play to force the reluctant politicians to do what they ‘must’. And that last ploy is the debt ceiling.

Once private debt has been created the central banks are under-pressure to create public debt with which to back it. They know this is how it works they are on record as saying so. But they are caught in a dilemma. The politicians and the public think the government and central banks are in charge and can tell the markets how much debt is enough. The central banks know they do not really have this power because in reality it is the markets not the central banks who are in charge and  decide how much debt is good for THEM.

What can the central banks do? Nominally they work for the government. The people even think they work for them (ho ho!) Whereas the logic which controls lies in the markets and the levers are in the banks. If the Central banks were to come clean and tell the government and the public who is really in charge, who they really work for, what would happen? So they don’t come clean, at least not in public, leaving the poltiicans to argue fatuously amoung themselves for our entertainment.

There are only a limited number of end games I think. The issuance of debt will go on despite the increasing drama of the decisions. The question for the banks will be how best to manage it with the minimum of fuss and least chance of the real situation becoming too clear too early.

Debt issuance will go on because the present economic system, fueled as it is by debt, requires growth above the rate of interest they are all charging each other. The Pension companies require more growth than that because they have long term obligations to pay out at a higher rate. In boom times growth takes care of itself. In bad time that growth ‘must’ be provided by ‘stimulus’ AKA public debt. The minimum growth they want for the headlines is 3%. Which seems reasonable till you do the maths and find 3% growth means a doubling every 17 years. Given the frequency of ‘busts’ built into the debt based system and how much they cost the public each time – (and they are built in – I explained one aspect of this in the last part of the Securitization series. (For completeness here are parts 1 and 2.)  This series is my take on the same logic than Minsky had of course already come to before and more fully) – it is clear how much ‘growth’ is going to be based on public debt. So the debt will grow.

But while it does, other parts of the economic system and their political friends will complain about the size of the debt. So there will continue to be a pressure to stop the debt ‘getting out of control’. How to sqaure this idiot’s circle? The answer is already here only in its infant form. Public Debt created to back private debts will be ‘required’ to grow. Public debt for other things will therefore be under pressure to be cut. So far what has been cut has been the easy and the small beer.

The sums ‘saved’ have been tiny in comparison with the sums created in order to ‘help’ the financial system, even though the misery created in cutting them has been huge. But who cares about miserable poor people when you’re a rich happy one? Nevertheless the sums saved through ‘austerity’ are not going to be sufficient over even the medium term of the next decade. The ‘savings’ need to be orders of magnitude greater. For that the only option is to target the long term, ‘unfunded commitments of health, state pension and long term welfare. These are what the bankers will target when people have been softened up and the next bust hits.

The option I think they will go for is complete privatization of health, welfare and state pension.

All these long term ‘unfunded obligations’ as they are called appear in public debt accounts as future liabilities, future debts. But as soon as the same obligations are shifted to the private sector they become future profits rather than future debts. No matter that people might not be able to pay for them – accountants are not paid to worry about such details. To you and me it might seem daft to think that by moving things from one column to another , from public to private that this will suddenly make things better. And of course it won’t. The private sector will argue it will be ‘better’ because they are so much more ‘efficient’. Believe that if you like.  But the main thing is the acounting exercise will make the number in the public debt column go down.

The important thing for any discussion of public debt levels, is that removing these ‘obligations’ from the public account suddenly cuts the future public debt. Freeing up all that now uncommitted future debt to be available for pumping into the private financial sector . Which it would suddenly make ‘good economic sense’ to help, given the now very buoyant future demand for private health, pensions and welfare provision.

Public debt is always seen by the financial world as a drain, an obligation. The same obligations re-cast as serivces are seen as a source of future profit. Thus I think we will see in the next few years an all out attack on every aspect of public service provision.  Libertarians amoung you might cheer at this point. I think you will not cheer when you see what is going to replace what you currently dislike.

I believe the era of the Nation-State is coming to an end not because of attack from outside enemies but because Nation-States are being dismantled from the inside – by the  State itself.  But the State has no itention of losing power. It is simply changing jobs and employer. The big welfare state is being dismantled but in its place is going to come an even bigger and certainly more repressive Corporate State.

But the End of the Nation-State and the emergence of a global system of  Technocratic, Managed rather than democratic Corporate-States is a larger discussion I am still writing.


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